Endangered species: Government worker

NEW YORK (CNNMoney.com) -- Once upon a time, there was job security in a government job.

That's no longer the case. The layoff ax has hit public sector payrolls with force as states wrestle with massive budget shortfalls. Since August 2008, some 231,000 state and local government jobs have disappeared -- 22,000 last month alone, according to federal data.

The majority of the cuts are on the local level, which at 14.4 million workers is nearly three times the size of the state workforce. Plus, unlike at the federal level, most of these cuts come from the ranks of teachers, cops, firefighters and social service workers.

And more pain is coming down the pike. Some 19 states say they plan to implement layoffs to narrow budget gaps, according to a recent survey.

The cuts will be even deeper if Congress doesn't give $24 billion to the states to help cover Medicaid costs. This legislation, along with a $23 billion bill to fund teachers' salaries, is bogged down in political posturing on Capitol Hill.

Even President Obama is voicing concerns about the impending wave of job cuts. He wrote a letter to the leaders of both parties in the House and Senate on Saturday urging them to increase federal aid to the states. Otherwise, the country faces "a mounting employment crisis at the state and local level that could set back the pace of our economic recovery."

To be sure, the private sector has suffered more carnage during the Great Recession. But government jobs are generally considered more secure, even during economic downturns. The last time local government payrolls were smaller than the year before was in March 1984.

And, while the companies have been adding jobs in recent months, the public sector continues to shrink because state and local economic revivals typically lag the national upturn by at least 18 months.

Nowhere else left to cut

Many governors and lawmakers are scrambling to balance their budgets for fiscal 2011, which begins July 1 in 46 states. State officials have already deeply slashed funds for programs and services, so the only place left to look for savings is payroll, said Raymond Scheppach, executive director of the National Governors Association.

Earlier in the recession, state officials tried to reduce employee expenses by instituting hiring freezes or furloughs. More than half of states proposed or instituted unpaid leaves in fiscal 2010, said Todd Haggerty, policy associate at the National Conference of State Legislatures.

But now that they are into their third year of tax revenue declines, states have little choice but to shed workers.

"In many cases, you are seeing many states going to layoffs now," Haggerty said.

Take Wisconsin, for example. Some 10% of state workforce positions are vacant, the result of layoffs and hiring freezes, said Gov. Jim Doyle. If Congress doesn't provide additional Medicaid funds to the states, Wisconsin will have to shed another 2% to 3% of its payroll.

"We have cut and cut and cut," he said in a recent conference call with reporters.

Still, it's not easy -- or politically popular -- to slash government workers. California's public payroll, for instance, is 62,000 lighter than it was in the beginning of fiscal 2008. But it should have elminated 130,000 jobs considering the Golden State's precipitous decline in revenues, according to a UCLA Anderson Forecast that was released Tuesday.

Trickle down

States, of course, aren't the only ones suffering. Cities and local governments are, too.

Not only do local governments have to contend with their own revenue shortfalls, they also have to deal with reduced state aid. Some 7 in 10 local officials said they had to resort to personnel cuts over the past year to balance their budgets, according to a National League of Cities report released last month.

Financial troubles on the municipal level usually hit teachers and social service workers the hardest. But even police officers are not immune these days.

Slashing public payrolls hurts the greater economy, as well, experts said. Not only does it increase unemployment, but it further drains the state of personal income taxes and of sales taxes when those jobless workers curtail their shopping. And it could put additional stress on government services, such as Medicaid.

"The key to continued economic growth is job creation," said Mark Zandi, chief economist of Moody's Economy.com, who advocates more federal aid to the states. Layoffs "put significant stress on an already fragile economic recovery."